Transition to Online Video Will Not be Gradual When it Happens

March 20, 2014By: Gary Kim

“Demography is destiny,” is something you hear often. But it is a quip with solid rooting? As Liberty Media CEO John Malone (News - Alert) once said in response to an analyst’s question about take rates for cable TV, specifically the fact that some consumers had high resistance to buying the product, Malone quipped that this was true, but “those people are dying.”

It is a simple fact that generations of people eventually die, and are replaced by successive generations of people. So when researchers see significant generational demand for some products, the habits of the younger age cohorts are strategic, as they represent the future consumption patterns of virtually all age cohorts.

In that regard, younger users have markedly different consumption patterns, in the area of entertainment video.

To be sure, perhaps 45 percent to 50 percent of U.S. broadband households now use paid over-the-top (OTT) video services, either subscription or transactional, according to Parks Associates. That is up slightly over about a year’s time.

Including “free” sources such as YouTube (News - Alert), perhaps 70 percent of Internet users watch at least some over the top video.

Parks Associates also notes that 37 percent of consumers 18 to 24 view online video is their most important video source.

More than 40 percent of U.S. broadband households selected online video as one of the top three important sources of video, topping rental DVDs at 25 percent and 13 percent who said owned Blu-ray discs were among the top three sources.

The key observation is the huge difference in video entertainment preferences between the oldest and the youngest age cohorts, with roughly linear correlations in demand across all age cohorts, namely that the older the user, the less reliance is placed on over the top, streamed sources.

The younger the user, the more reliance is placed on streamed video entertainment. For users 34 or younger, online sources are at least as important as linear video, and among those younger than 24, the most-used delivery mode.

Should those behaviors persist as younger consumers grow older, linear video demand will drop, and content now delivered using linear retail formats will have to shift.

But there is one important observation about the timing of such a change. Though one might argue the transition will be about as linear as the consumption graph indicates, this almost certainly will not be the case.

When the disruption happens, and linear content is made available on a streamed basis, behavior will shift rapidly, in quantum fashion, not linearly.

The reason for the prediction is simple: all other popular mass market services have shown a quantum, not linear adoption pattern.

There will be a long, slow phase of preparation, where sales do not shift much. But when the inflection point is reached, buying behavior will shift rapidly and dramatically.